Question
In: Finance
Proposal #1 would extend trade credit to some customers that previously have been denied credit because...
Proposal #1 would extend trade credit to some customers that previously have been denied credit because they were considered poor risks. Sales are projected to increase by $150,000 per year if credit is extended to these new customers. Of the new accounts receivable generated, 7% are projected to be uncollectible. Additional collection costs are projected to be 3% of incremental sales (whether they actually end up collected or not), and production and selling costs are projected to be 80% of sales. Your firm expects to pay a total of 40% of its income after expenses in taxes.
1) Compute the incremental income after taxes that would result from these projections:
2) Compute the incremental Return on Sales if these new credit customers are accepted: If the receivable turnover ratio is expected to be 3 to 1 and no other asset buildup is needed to serve the new customers…
3) Compute the additional investment in Accounts Receivable
4) Compute the incremental Return on New Investment
5) If your company requires a 20% Rate of Return on Investment for all proposals, do the numbers suggest that trade credit should be extended to these new customers? Explain.
Solutions
jeff jeffy answered 1 year agoRelated Solutions
Proposal #1 would extend trade credit to some customers that previously have been denied credit because...
Proposal #1 would extend trade credit to some customers
that previously have been denied credit because they were
considered poor risks. Sales are projected to
increase by $200,000 per year if credit is extended to these new
customers. Of the new accounts receivable generated, 6%
are projected to be uncollectible. Additional collection
costs are projected to be 5% of incremental sales, and production
and selling costs are projected to be 78% of sales. Your
firm expects to pay a total of 30% of its...
Proposal #1 would extend trade credit to some customers that previously have been denied credit because...
Proposal #1 would extend trade credit to some customers
that previously have been denied credit because they were
considered poor risks. Sales are projected to increase
by $200,000 per year if credit is extended to these new customers.
Of the new accounts receivable generated, 6% are projected to be
uncollectible. Additional collection costs are projected to be 5%
of incremental sales, and production and selling costs are
projected to be 78% of sales. Your firm expects to pay a total...
Proposal #1 would extend trade credit to some customers that previously have been denied credit because...
Proposal #1 would extend trade credit to some customers
that previously have been denied credit because they were
considered poor risks. Sales are projected to increase
by $200,000 per year if credit is extended to these new customers.
Of the new accounts receivable generated, 6% are projected to be
uncollectible. Additional collection costs are projected to be 5%
of incremental sales, and production and selling costs are
projected to be 78% of sales. Your firm expects to pay a total...
Proposal #1 would extend trade credit to some customers that previously have been denied credit because...
Proposal #1 would extend trade credit to some customers that
previously have been denied credit because they were considered
poor risks. Sales are projected to increase by $150,000 per year if
credit is extended to these new customers. Of the new accounts
receivable generated, 7% are projected to be uncollectible.
Additional collection costs are projected to be 3% of incremental
sales (whether they actually end up collected or not), and
production and selling costs are projected to be 80% of...
Proposal #1 would extend trade credit to some customers that previously have been denied credit because...
Proposal #1 would extend trade credit to some customers
that previously have been denied credit because they were
considered poor risks. Sales are projected to increase
by $200,000 per year if credit is extended to these new customers.
Of the new accounts receivable generated, 6% are projected to be
uncollectible. Additional collection costs are projected to be 5%
of incremental sales, and production and selling costs are
projected to be 78% of sales. Your firm expects to pay a total...
Proposal #1 would extend trade credit to some customers that previously have been denied credit because...
Proposal #1 would extend trade credit to some customers
that previously have been denied credit because they were
considered poor risks. Sales are projected to increase
by $240,000 per year if credit is extended to these new customers.
Of the new accounts receivable generated, 6% are projected to be
uncollectible. Additional collection costs are projected to be 2%
of incremental sales (whether they actually end up collected or
not), and production and selling costs are projected to be 78% of...
Proposal #1 would extend trade credit to some customers that previously have been denied credit because...
Proposal #1 would extend trade credit to some customers
that previously have been denied credit because they were
considered poor risks. Sales are projected to increase
by $150,000 per year if credit is extended to these new customers.
Of the new accounts receivable generated, 7% are projected to be
uncollectible. Additional collection costs are projected to be 3%
of incremental sales (whether they actually end up collected or
not), and production and selling costs are projected to be 80% of...
Proposal #2 would extend trade credit to some customers that previously have been denied credit because they were considered poor risks.
You have been asked to assess the expected financial impact of
each of the following proposals to improve the profitability of
credit sales made by your company. Each proposal is independent of
the other.Proposal #2 would extend trade credit to some customers
that previously have been denied credit because they were
considered poor risks. Sales are projected to increase
by $150,000 per year if credit is extended to these new customers.
Of the new accounts receivable generated, 10% are projected...
B Excel #1 Proposal #1 would extend trade credit to some customers that previously have been...
B Excel #1
Proposal #1 would extend trade credit to some customers that
previously have been denied credit because they were considered
poor risks. Sales are projected to increase by $120,000
per year if credit is extended to these new customers. Of the new
accounts receivable generated, 6% are projected to be
uncollectible. Additional collection costs are projected to be 5%
of incremental sales, and production and selling costs are
projected to be 80% of sales. Your firm expects to...
Answer all questions. Showing your work Proposal #1 would extend trade credit to some customers that...
Answer all questions. Showing your work
Proposal #1 would extend trade credit to some
customers that previously have been denied credit because they were
considered poor risks. Sales are projected to increase by $200,000
per year if credit is extended to these new customers. Of the new
accounts receivable generated, 6% are projected to be
uncollectible. Additional collection costs are projected to be 5%
of incremental sales, and production and selling costs are
projected to be 78% of sales. Your...
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